The Anxious Optimist in the Corner Office - PwC’s 21st CEO Survey

Thursday, January 25, 2018 9:00AM / PwCHighlights• Optimism in global
economic growth reaches record level and rises in all countries• US reinforces its lead on China as a target market for growth in
2018• Over half of CEOs expect their headcount to increase• Terrorism,
geopolitical uncertainty, cyber and climate change rise as threats to
growthIntroductionThe
21st PwC CEO survey launched on 22 January 2018 at the World Economic Forum
Annual Meeting in Davos.One
of the key findings from the survey is that 57% of business leaders believe
that global economic growth will improve in the next 12 months. This figure is
almost twice the level of last year 29%, and the largest ever increase since
PwC began asking CEOs about global growth in 2012.The
confidence CEOs have in short-term revenue growth is feeding into jobs, with
54% of CEOS planning to increase their headcount. CEOs are however concerned
about the availability of digital talent.Despite
the optimism in the global economy, anxiety is rising on a much broader range
of business, social and economic threats. CEOs are ‘extremely concerned’ about
geopolitical uncertainty 40%, cyber threats 40%, terrorism 41%, the
availability of key skills 38% and populism 35%.

A
record-breaking share of CEOs are optimistic about the economic environment
worldwide, at least in the short term. That’s one of the key findings of PwC’s
21st survey of almost 1,300 CEOs around the world, launched on January 22, 2108
at the World Economic Forum Annual Meeting in Davos.Fifty
seven percent of business leaders say they believe global economic growth will
improve in the next 12 months. It’s almost twice the level of last year (29%)
and the largest ever increase since PwC began asking about global growth in
2012.Optimism
in global growth has more than doubled in the US (59%) after a period of
uncertainty surrounding the election (2017: 24%). Brazil also saw a large
increase in the share of CEOs who are optimistic global growth will improve
(+38% to 80%). And even among the less optimistic countries such as Japan
(2018: 38% vs. 2017: 11%) and the UK (2018: 36% vs. 2017: 17%), optimism in
global growth has more than doubled since last year.“CEOs’
optimism in the global economy is driven by the economic indicators being so
strong. With the stock markets booming and GDP predicted to grow in most major
markets around the world, it’s no surprise CEOs are so bullish,” comments Bob
Moritz, Global Chairman, PwC.Confidence in short-term revenue growth on the riseThis
optimism in the economy is feeding into CEOs’ confidence about their own
companies’ outlook, even if the uptick is not so large. 42% percent of CEOs
said they are “very confident” in their own organisation’s growth prospects
over the next 12 months, up from 38% last year.Looking
at the results by country, it’s a mixed bag. CEOs’ outlook improved in several
key markets including in Australia (up 4% to 46%) and China (up 4% to 40%),
where the share of CEOs saying they are “very confident” in their own
organisation’s 12-month growth prospects rose.In
the US, CEOs’ confidence has recovered. After election nerves last year, the
early focus on regulation and tax reform by the new administration has seen
confidence in business growth prospects for the year ahead rising significantly
– from 39% in 2017 to 52% in 2018. And North America is the only region where a
majority of CEOs are “very confident” about their own 12-month prospects.In
the UK, with Brexit negotiations only recently reaching a significant
milestone, business leaders’ drop in short-term confidence is unsurprising
(2018: 34% vs. 2017: 41%).The
top three most confident sectors for their own 12-month prospects this year are
Technology (48% “very confident”), Business Services (46%) and Pharmaceutical
and Life Sciences (46%) – all exceeding the global “very confident” level of
42%.Strategies
for growth remain largely unchanged on last year’s survey – CEOs will rely on
organic growth (79%), cost reduction (62%), strategic alliances (49%) and
M&As (42%). There was a small increase in interest in partnering with
entrepreneurs and start-ups (33% vs 28% last year).Top
countries for growth: Confidence in US
continues, reinforcing lead on ChinaCEO
confidence in the US market extends overseas, with non-US based CEOs once again
voting it the top market for growth in the next 12 months. This year, the US
reinforces its lead on China (46% US vs 33% China, with the US lead over China
up 2% compared with 2017).Germany
(20%) remains in third place, followed by the UK (15%) in fourth place, while
India bumps Japan as the fifth most attractive market in 2018.“Even
with high levels of global growth confidence, business leaders want and need
safe harbours for investment to secure short-term growth,” comments Bob Moritz,
Global Chairman, PwC. “Access to consumers, skills, finance and a supportive
regulatory environment are reinforcing leading markets’ positions, for business
leaders to achieve their short-term growth targets.”Jobs
and digital skills:headcounts to
increase; leaders concerned about availability of digital talentConfidence
in short-term revenue growth is feeding into jobs growth, with 54% of CEOs
planning to increase their headcount in 2018 (2017: 52%). Only 18% of CEOs
expect to reduce their headcount.Healthcare
(71%), Technology (70%), Business Services (67%) Communications (60%) and
Hospitality and Leisure (59%) are amongst the sectors with the highest demand
for new recruits.On
digital skills specifically, over a quarter (28%) of CEOs are extremely
concerned about their availability within the country they are based, rising to
49% extremely concerned in South Africa, 51% in China and 59% in Brazil.Overall,
22% of CEOs are extremely concerned about the availability of key digital
skills in the workforce, 27% in their industry and 23% at the leadership level.Investments
in modern working environments, learning and development programmes and
partnering with other providers are the top strategies to help them attract and
develop the digital talent they need.Impact of technology on employment and skillsWhile
recent research by PwC showed that workers were optimistic about technology
improving their job prospects, CEOs admit that helping employees retrain, and
increasing transparency on how automation and AI could impact jobs is becoming
a more important issue for them.Two
thirds of CEOs believe they have a responsibility to retrain employees whose
roles are replaced by technology, chiefly amongst the Engineering &
Construction (73%), Technology (71%) and Communications (77%) sectors. 61% of
CEOs build trust with their workforce by creating transparency, at least to
some extent, on how automation and AI impact their employees.

Bob
Moritz, Global Chairman, PwC, comments:“Our
education systems need to arm a global workforce with the right skills to
succeed. Governments, communities, and businesses need to truly partner
to match talent with opportunity, and that means pioneering new approaches to
educating students and training workers in the fields that will matter in a
technology-enabled job market. It also means encouraging and creating
opportunities for the workforce to retrain and learn new skills throughout
their careers. As the interest in apprenticeships and internships shows,
lifelong training relevant to a business or industry is critical.”The
digital and automation transition is particularly acute in the Financial
Services sector. Almost a quarter (24%) of Banking & Capital Markets and
Insurance CEOs plan workforce reductions, with 28% of Banking & Capital
Markets jobs likely to be lost to a large extent due to technology and
automation.Threats
to growth:CEOs fear wider societal threats they can’t
controlDespite
the optimism in the global economy, anxiety is rising on a much broader range
of business, social and economic threats. CEOs are ‘extremely concerned’ about
geopolitical uncertainty (40%), cyber threats (40%), terrorism (41%),
availability of key skills (38%) and populism (35%). These threats outpace familiar
concerns about business growth prospects such as exchange rate volatility (29%)
and changing consumer behaviour (26%).Underlining
the shift, extreme concern about terrorism doubled (2018: 41% vs 2017: 20%) and
terrorism enters the top 10 threats to growth. The threat of over-regulation
remains the top concern for CEOs (42% extremely concerned), and over a third
(36%) remain concerned about an increasing tax burden.Key
skills availability is the top concern for CEOs in China (2018: 64% extremely
concerned vs. 2017: 52%). In the US (63%) and the UK (39%), cyber has become
the top threat for CEOs displacing over-regulation. And in Germany, cyber
jumped from being the fifth threat in 2017 to third place (28%) this year.A
year after the Paris Agreement was signed by over 190 nations, which saw
countries commit to voluntary action on climate change and low carbon
investment, CEOs’ concern about the threat of climate change and environmental
damage to growth prospects has now doubled to 31% of CEOs (2017: 15%).High-profile
extreme weather events and the US withdrawal from the Paris Agreement have
significantly raised the profile of business action on climate risk, regulation
and resilience. In China, over half (54%) of business leaders are
extremely concerned about climate change and environmental damage as a threat
to business growth, equal with their levels of concern about geopolitical
uncertainty and protectionism.“The
higher level of concern is being driven by larger societal and geopolitical
shifts rather than the dynamics of business leaders’ own markets,” comments Bob
Moritz, Global Chairman, PwC. “It’s clear their mid to long-term confidence in
revenue growth is tempered by threats the business world is not used to
tackling directly itself.”Trust
and leadership:CEOs divided over whether future
economic growth will benefit the many or the fewEchoing
the theme of the World Economic Forum this year, CEOs acknowledge that we live
in a fractured world. They are divided over whether future economic growth will
benefit the many or the few. They see the world moving towards new,
multifaceted metrics to measure future prosperity.Bob
Moritz, Chairman, PwC comments:“The
higher levels of CEO concern about broader societal threats underlines how
companies are navigating an increasingly fractured world. CEOs across every
region and country that we spoke to recognise that the old ways of measuring
growth and profit won’t work alone for the future. Particularly in the context
of the Sustainable Development Goals, we’re likely to see more work developing
and defining metrics that capture and communicate an organisation’s purpose in
a way that is relevant to businesses’ stakeholders in the coming years.”Examining
the key challenges to trust for businesses, CEOs admit that delivering results
in shorter periods of time (60%) is the main challenge. However, following
this, there is a significant shift with the majority reporting higher levels of
pressure to hold individual leaders to account (59%), including for misconduct.
Over a third report more pressure from employees and customers to take
political and social stances (38%) in public.In
the Banking and Capital Market (65%), Healthcare (65%) and Technology sectors
(59%), the profile of leadership accountability was higher than average. So too
were expectations in the US (70%), Brazil (67%), and the UK (63%).
High-profile debates on diversity, immigration, social inclusion and pay
equity have raised employees’ expectations of leadership to engage in political
and social issues, particularly in the US (51%), China (41%) and the UK (38%).Download
the report HERE

Notes

1.PwC conducted 1,293
interviews with CEOs in 85 countries between August and November 2017. Our
sample is weighted by national GDP to ensure that CEOs’ views are fairly
represented across all major countries. 11% of the interviews were conducted by
telephone, 77% online, and 12% by post or face-to-face. All quantitative
interviews were conducted on a confidential basis. 40% of companies had
revenues of $1 billion or more: 35% of companies had revenues between $100
million and $1 billion; 20% of companies had revenues of up to $100 million;
56% of companies were privately owned.

2.Climate Change: Climate
Change and environmental damage is reported in the top five threats for
businesses in Asia Pacific, and Western Europe and recognised as a top five
threat for the growth prospects of companies in the Energy and Utilities,
Engineering and Construction, Transport and Logistics sectors.

3.Globalisation: When asked
if globalisation has helped ‘close the gap between the rich and the poor’,
nearly 40% of CEOs respond “not at all’. 30% said globalisation had not helped
‘avert climate change and resource scarcity’. More than one in four CEOs say
that globalisation has not helped improve the ‘integrity and effectiveness of
global tax systems’ at all.

4.Trust: 71% of CEOs are now
measuring trust between their workforce and leadership: 74% between their
organisation and its customers. Action on cyber security, diversity and
inclusion and increased transparency on business strategies and plans were
amongst the key areas of focus.

5.While only 18% of CEOs
expect to reduce their headcount, CEOs estimate that four out of five (80%) of
those jobs affected will have been impacted in some way by technology – 52% to
some extent and 28% to a large extent.

6.PwC’s Global Innovation
1000 Study this year found that 52% of respondents believe economic nationalism
will have a moderate or significant impact on their company’s R&D efforts,
replacing today’s integrated and interdependent network with isolated R&D
nodes.